Before policies and measures that aim to reduce, or remove barriers that hamper,
GHG emissions or enhance sequestration by sinks are analyzed, it is necessary
to understand the substantial impact that other policies (such as the structural
reforms of trade liberalization and liberalization of energy markets) have had
on GHG emissions in several developing countries, economies in transition (EITs),
and some developed countries. These policies, sometimes coupled with macroeconomic,
market-oriented reforms, set the framework in which more specific climate policies
would be implemented. Therefore, to assess correctly the feasibility of any
particular policy, it is important to understand this new policy context. The
effect of these reforms on energy use and GHG emissions is not clear a priori.
Impacts can differ widely among countries, depending on implementation strategies
and the existence of other regulatory policies designed to prevent the undesired
effects of free market operation in the presence of externalities, information,
and co-ordination problems.

6.2.1 Non-Climate Policies with Impacts on Greenhouse Gas
Emissions

6.2.1.1 Structural Reform Policies

During the 1990s, several countries, especially EITs and developing countries,
implemented drastic market-oriented reforms that have had important effects
on energy use and energy efficiency, and therefore on GHG emissions.12
Most countries have undergone what has been called the first generation of structural
reforms: trade liberalization, financial deregulation, tax reform, privatization
of state-owned enterprises, and opening the capital account as part of a strategy
to attract foreign investment. Some countries have also implemented macroeconomic
stabilization packages that include fiscal discipline, independence of monetary
policy from the public sector, and exchange rate unification.

The two largest countries in terms of population and coal reserves, China and
India, have also started to reform their economic systems towards a more free-market
orientation, although at a slower pace than many other countries. Since 1978,
energy use in China has increased, on average, 4%/yr. However, the energyoutput
ratio in China fell 55% between 1978 and 1995.13
Garbaccio et al. (1999), using inputoutput tables, found that most
of this reduction arose from technical change, a result supported by other studies
(Polenske and Lin, 1993; Sinton and Levine, 1994). An increase in energy-intensive
imports has also led to decreased energy use per unit of GDP. Others have attributed
the reduction to sectoral shifts in the composition of output (Smil, 1990; Kambara,
1992). As reform-induced changes aimed at increasing GDP may increase the use
of energy, the net effect on GHG emissions of structural reform in China is
an empirical problem that depends on the choice of development strategies, technologies,
and complementary policies.

Future economic growth in all countries may be accompanied by increases in
GHG emissions. Even if economic growth increases energy efficiency (both in
terms of production and consumption), the scale effect may dominate and GHG
emissions may rise, depending on the extent to which other policies and measures
are implemented to curb emissions (Fisher-Vanden, 1999).